Back in April, there were lots of reports about how private equity investor Tom Gores was planning to buy the Detroit Pistons basketball franchise and related assets. I put a slightly different spin on it, saying that the majority owner would be a private equity fund managed by Gores’ firm Platinum Equity, rather than Gores himself.
In response, some Detroit sports scribes basically said I didn’t know what I was talking about. Here was Vince Ellis of the Detroit Free Press:
A published blog posted on fortune.com Wednesday may have been misleading in speculating that this will be the first time a private equity fund will be the primary owner of an NBA franchise. Here are the facts: The deal’s structure does include a minority investment from one of Platinum’s private equity funds — along with financing from Comerica — but Gores is putting up the majority of the capital and will be the owner. This is not an unusual arrangement. The Pistons’ current ownership team has minority investors, and so does nearly every other team in the league. The NBA insists on a single owner who controls the team, and that will be Gores.
Turns out we were both right. Sort of.
Platinum Equity does indeed own 51% of Palace Sports & Entertainment (the holding company), meaning that a private equity fund is technically the majority owner. But Gores is a significant investor in Platinum funds, which means he indirectly owns a majority stake. Moreover, Gores is the top decision-maker at Platinum – giving him sole operational control.
It will be interesting to eventually learn more about how the deal is structured, including what happens if it goes bad. Remember, an individual owner can hold onto a money-losing franchise, so long as they can stomach the hit. A fund with outside investors, however, has different fiduciary obligations.